Eddington report raises questions

By Malcolm Maiden

FEARS that Sir Rod Eddington's report on Melbourne's east-west transport needs would proselytise for development at any cost and open the way for a freeway free-for-all have been confounded.

Instead, Eddington's report has thrown up serious questions for the Brumby Government to answer, about whether the huge projects Eddington says are needed to open up the east-west corridor can be justified economically, and, if they can, about how they will be financed and delivered. It is about as far from a lobbying report for constructors and financiers as it could get.

The report identifies projects that can ease transport congestion as the city grows, and splits the estimated $15 billion cost (in present-value dollars) evenly between road and rail projects. Two east-west tunnels, one for road traffic and one for rail, dominate, and they heavily skew the financials.

The tunnels are necessary because Melbourne already exists: above-ground alternatives would cost about a 10th as much to build if Melbourne's mass of concrete, bricks and mortar was not in the way.

But it is, and the need to tunnel increases the cost of the projects enormously, and tightens the cost-benefit equations.

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The first cost benefit that Eddington's team presses out of the $15 billion rail and road solution are put at $11.1 billion, harvested mainly from reduced travel times.

The team then presses harder, to squeeze out "wider economic benefits" that boost the total to $14.4 billion - still slightly less than the cost. These wider benefits are the product of savings and gains made as the upgraded transport network creates urban clusters and better interaction between businesses and workers.

The report finally estimates that total benefits amount to $20.4 billion on the full-blown $15 billion suite of road and rail projects. This figure includes a third and final pressing, which identifies social amenity benefits derived from tunnelling instead of bulldozing hectares of the city, improved road network reliability and travel time volatility, and the strategic benefit the city derives from having new major east-west road and rail arteries to provide a transport fail-safe for the only existing one, the West Gate Bridge.

Redundancy for the West Gate in particular must have great potential value: as things stand, if the West Gate closes, as it did on Wednesday when high winds swept across the city, east-west traffic and commerce grinds to a halt.

But the report's $20.4 billion figure is an informed guess. Eddington's team did not have the time or resources to value fully these more intangible benefits, and it will be up to

the Brumby Government to complete the equation, as it considers its response.

Eddington's team has also released a cost-benefit analysis on a trimmed down project that ditches the road tunnel and focuses on rail and other public transport measures.

It costs $7.9 billion in today's dollars, generates the same value of "first pressing" benefits, $7.9 billion, and second pressing "wider economic benefits" of $1.3 billion for a total of $9.2 billion, or

1.2 times estimated cost. That's slightly better than the sub-par ratio that the full project achieves after two pressings - but the more important point is that both ratios are relatively low, as is the final ratio of

1.4 times the $20.4 billion benefit the full project achieves.

We know why: tunnels are needed, and tunnels are expensive when cities already exist. But the bottom line for the Government is that these immense projects will deliver benefits that only marginally outweigh their cost.

That in turn creates funding issues. Eddington expects that a mix of state, federal and private-sector funding, underpinned by various user tolls, will be required. But as accountants Ernst & Young point out in work it has done for Eddington, the Victorian Government is constrained if it observes its self-imposed rule that debt not exceed 3% of annual gross state product (GSP).

Net general government debt is already expected to rise from $2.7 billion in 2006-07 to $8.2 billion by 2010-11, at which point it will represent 2.8% of GSP. The Government is, in other words, already bumping up against its debt ceiling even before it puts its hand up for a cent of the $15 billion it needs for the full east-west response.

That fact "may inform both the vehicle and the forms of procurement", E&Y dryly notes. But, on Eddington's analysis, the private sector will not necessarily be rushing into the breach: the economic cost-benefit analysis in the report is the bedrock on which the business case for the projects should be built, and it does not seem to lay foundations that are rock-solid.

The Eddington report asserts that doing nothing is not an option and, while it does not actually cost the do-nothing option, one senses it is correct: this city has grown much more quickly than expected, and its increasingly elderly arteries are hardening.

What to do? The Government must flesh out the cost-benefit analysis and stress-test it, for starters, and scope Australia's east-coast construction and funding pipeline. It will find that it cannot procrastinate, because there are limited resources available for projects of this magnitude: Sydney and Brisbane are both ahead of Melbourne in the queue.

Then it must decide. And if it presses the button, as it probably should, it may have to choose between subsidising private-sector projects, with the attendant political risks, and abandoning its 3% debt-to-GSP target to take the job on directly.